The British Phonographic Institute, the industry body which represents Britain's leading music companies, has won the right to sue the owners of controversial Russian website allofmp3.com in the High Court.

A judge granted permission for the institute, whose members include EMI and Sanctuary, to take action on Thursday, and it will serve a writ this week. The site allows users to download albums for as little as £1, and had been dubbed 'the new Napster' by the music industry.

Its owner, Media Services, claims that it is exploiting a loophole in Russian copyright law to make music available cheaply over the internet, selling tracks at a fraction of the cost of Western rivals.

Media Services pays licence fees to Russian agencies, but the British Phonographic Institute (BPI) says that record companies have not granted AllofMP3 permission to sell music, and that Media Services is aware of this.

The British music industry lost £414m last year as a result of the illegal swapping of music on the internet. British users of the site could eventually face legal action, although last week's judgment indicates the BPI is more likely to seek to close the site by suing its founders.

The site is already under criminal investigation by Russian prosecutors and has been singled out by the US Trade Representative's office as an example of Russia's poor record on tackling piracy. Media Services insists that its business is legal.

BPI's general counsel, Roz Groome, said: 'This is an important step forward in our battle against AllofMP3.com. We have maintained all along that this site is illegal and that the operator of the site is breaking UK law by making sound recordings available to UK-based customers without the permission of the copyright owners. Now we will have the opportunity to demonstrate in the UK courts the illegality of this site.'

Groome has previously criticised AllofMP3 for portraying itself as a cut-price but legal site, saying: 'The reason AllofMP3.com downloads are cheap is that neither the artists nor the record companies are being paid. It is only the operator of the site who is benefiting from the sales to UK customers.'

The allofMP3.com website is the second most popular download site in Britain after Apple's i-tunes, accounting for 14 per cent of music downloads, a recent survey found. Napster was in third place with about 8 per cent. Although albums typically cost £1 to download from AllofMP3.com, special deals mean that some are sold for as little as 53p.

Napster, one of the first 'file-sharing' sites, was successfully sued by the music industry and has subsequently relaunched as a paid-for music site.

The music industry blames the growth of file-sharing software for its poor performance in recent years. CD sales have fallen by 25 per cent since file-sharing began to take off in 1999.